Income Tax Appellate Tribunal - Chandigarh
Assistant Commissioner Of Gift-Tax vs Munjal Castings on 28 October, 1998
Equivalent citations: [1999]70ITD233(CHD)
ORDER
Mehta
1. The following common ground is raised in all these appeals filed by the department against separate orders passed by the CGT(A) :-
"The ld. CGT(A)(C), Ludhiana has erred both in law and on facts in cancelling the assessment framed by the Assessing Officer under section 15(3) treating the transaction of purchase of non-cumulative preference shares giving 4% return against borrowing with 18% interest as indirectly gifting the money."
2. The facts have been discussed at length and adjudicated upon by the CGT(A) in the case of M/s. Rockman Cycle Inds. (P.) Ltd. and for purposes of disposing of the present three appeals, we advert initially to the facts in the case of M/s. Rockman Cycle Inds. (P.) Ltd. as the decision of the Tribunal thereto would be applicable in the other two cases as well.
3. In the case of M/s. Rockman Cycle Inds. (P.) Ltd., the GTO issued notice under section 16(1) of the Gift-tax Act, 1958 asking the assessee to file return of gift for the assessment year 1986-87. The reasons recorded by the GTO for issuing the impugned notice were as under :
"During the relevant previous year i.e., A.Y. 1986-87 the assessee purchased 50,000 4% redeemable non-cumulative preference shares of Rs. 100 each for Rs. 50,00,000 of Hero Investments (P.) Ltd., Ludhiana. The shares purchased are 4% non-cumulative preference shares even if the dividend is declared in any year, the yield from these shares is only 4%. Keeping in view the possibility that dividend may not be declared in some years' The market value of the share cannot be more than Rs. 30 per share. Keeping in view the market rate of interest obtaining in investment even in Government securities. Whereas the assessee has purchased the same @ Rs. 100 per share. Therefore, the assessee has paid Rs. 70 per share in excess of the market value without any consideration. I have therefore, reason to believe that the taxable gift has escaped assessment. Issue notice under section 16(1)(a) of the G.T. Act, 1958."
In response to the notice the assessee filed return declaring value of taxable gifts at nil and in a note accompanying the return it was mentioned that the company was allotted 50,000 4% redeemable non-eumulative preference shares at Rs. 100 each at par of M/s. Hero Investments (P.) Ltd. and since the shares could not be issued by the company below their face value as per section 79 of the Companies Act, there was no taxable gift involved. After receiving the return the GTO processed the matter and noted the following facts :-
1. The assessee company and M/s. Hero Investments (P.) Ltd. are closely interlinked and could be described as sister concerns.
2. For the purchase of shares the assessee company borrowed a sum of Rs. 45 lacs from another concern of Hero Group i.e., M/s. Majestic Auto Ltd. on 28-11-1984 at 18% interest per annum. Further, the aforesaid amount was credited in the assessee's bank account on the same date and there was a debit of identical amount to the bank account on 30-11-1984 for purchase of the said shares. Another sum of Rs. 5 lacs was also debited for the same purpose.
In addition to the aforesaid, the GTO referred to the assessment order passed by the DCIT (Central), Range-I, Ludhiana, in the income-tax assessment wherein it had been noted that there was a nexus between the borrowings of funds and purchase of shares and on the date on which the funds were borrowed, there was a debit balance in assessee's bank account to the tune of Rs. 8,48,543. The further fact noted in the income-tax assessment was that the transaction could not be considered as a normal business/income earning transaction and therefore provisions of section 57 of the Income-tax Act were not applicable. According to the Assessing Officer, the purchase of shares was for non-business consideration. The Assessing Officer in the income-tax proceedings also referred to the fact that the return to the assessee could not go beyond 4% and in certain years it may be nil whereas borrowings at 1896 interest and investing it in non-cumulative preference shares at 4% was a losing proposition and no prudent person would enter into such a transaction unless there were other non-business considerations. The GTO also referred to the views expressed by the CIT(A) in the income-tax proceedings for assessment year 1986-87 whereby he upheld the view taken by the Assessing Officer. As per para 4 of the order of the GTO it is noticed that before the CIT(A) the assessee took the stand that shares had been purchased not from borrowed funds but from business profits and adding thereto the notional depreciation and investment allowance the total working out to Rs. 83 lacs and odd. For the aforesaid submission the assessee placed reliance on certain judgments of the Hon'ble Calcutta High Court but these were distinguished by the CIT(A) on the ground that there was no similarity between the two cases. According to the CIT(A) it was a case of diversion of income for non-business consideration. In the final analysis, the CIT(A) in the income-tax proceedings upheld the view taken by the Assessing Officer further rejecting the alter-native submission of the assessee regarding the quantification of interest and he also held that the decision of the Hon'ble Supreme Court in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148/22 Taxman 11 was applicable.
4. Before the GTO, in respect of the present appeal, the arguments raised on behalf of the assessee were to the following effect :
1. The shares could not be issued below their face value of Rs. 100.
2. There was "group consideration" for purchasing the shares of M/s. Hero Investments (P.) Ltd. who were the co-promoters of M/s. Hero Honda Motors Ltd. Further, the collaboration of the Hero Group with Honda of Japan had enhanced the business image of the Hero Group and its constituents both in India and abroad.
3. There was no gift involved on the issue of preference shares as the shares came into existence only after the issue was effected as they were not existing property.
4. The shares allotted were 4% redeemable non-cumulative preference shares and it could not be said that the transfer was not for consideration as the shares were redeemable at par after 10-7-1997.
5. The purchase of preference shares by the assessee was in the course of carrying on its business and was for bona fide purposes.
The aforesaid submissions were rejected by the GTO on the following grounds :-
1. There was no compulsion on the part of the assessee to purchase the shares in question.
2. The study of the case of M/s. Hero Investments (P.) Ltd. revealed that the said company raised funds by issuing 4% non-cumulative preference shares as also by raising loans from different persons and further the said company invested more than Rs. 1 crore in acquiring the shares of M/s. Hero Honda Motors Ltd., a joint venture of the Hero Group. Further, with the passage of time the shares of M/s. Hero Honda Motors Ltd. showed an upward trend in the market whereas the market value of the shares acquired by the assessee company was not even 50% of the face value. In other words, the transaction resulted in benefit of crores of rupees to M/s. Hero Investments (P.) Ltd. and in this view of the matter the same was a colourable device to reduce the tax liability.
3. The market rate of interest was more than 18% and in case the assessee company had invested only 30% of the amount with some other company of repute that would have been sufficient to yield a return equal to 496 non-cumulative preference shares of M/s. Hero Investments (P.) Ltd. and would also be sufficient to cover the principal amount invested upto the date of redemption of the shares.
4. A few persons of the Group had transferred 4% non-cumulative preference shares of Rs. 100 each at Rs. 30 per share and even as per the Wealth-tax Rules the market value of the shares could not be more than 5096 of the face value.
In view of the aforesaid facts and on the basis of the reasoning adopted the GTO in the ultimate analysis held that the worth of the shares acquired by the assessee company was not more than Rs. 30 per share and the balance i.e., 70% of Rs. 50 lacs invested was a gift liable to gift tax. In this way of the value of the gift was worked out at Rs. 35 lacs and after allowing standard deduction of Rs. 5,000, the taxable gift was computed at Rs. 34,95,000.
5. Being aggrieved, the assessee came up in appeal before the CGT(A) and at which stage the arguments advanced were more or less identical to those tendered before the GTO. It was reiterated that the assessee was the original buyer of shares from the company and no element of gift was involved much less a deemed gift. The Assessing Officer also sought representation from the first appellate authority and filed written submissions reiterating the same line of reasoning as adopted in the assessment order. He also referred to certain other cases of the group where similar type of shares were purchased below the face value. The GTO further argued that no prudent businessman would invest for a return of 4% when the bank rate was more and in this view of the matter the element of gift was quite apparent.
6. In the reply the assessee's counsel contended that the point of time at which the transaction took place should be considered and in the present case the face value of the shares was Rs. 1 00 on the date of transfer. It was also argued that the Memorandum of Association of M/s. Hero Investments (P.) Ltd. was approved by the Central Government and proviso to section 4(1) of the Gift-tax Act was applicable. In support of the various arguments advanced the ld. counsel for the assessee placed reliance on the decisions of Hon'ble Madras High Court in the case of CGT v. Rukmani & Co. Ltd. [1980] 125 ITR 147/[1981] 5 Taxman 104 that of Hon'ble Allahabad High Court in Sir Padampat Singhania v. CGT [1988] 172 ITR 292/37 Taxman 1.
7. The aforesaid submissions found favour with the CGT(A) who held that provisions of sections 4(1)(c) and 4(1)(a) were not applicable and nor were the provisions of section 4(1)(a) attracted since the transfer of property had to be considered on the relevant date and in the present case the preference shares were purchased at the face value of Rs. 100 per share with a return of 4%. A reference was made to the decision of the Hon'ble Madras High Court in the case of Rukmani & Co. Ltd. (supra). The second ground on which the CGT(A) cancelled the Gift-tax assessment was that the Memorandum of Association of Hero Investments (P.) Ltd. had been approved by the Registrar of Companies and proviso to section 4(1)(a) was applicable.
8. The ld. D.R. appearing on behalf of the revenue argued at length reiterating the reasons recorded by the Assessing Officer in subjecting the transaction of purchase of shares to gift-tax. According to him, some of the members of the Group had transferred similar type of shares at Rs. 30 and this meant that the market value was not more than Rs. 30 whereas the assessee had purchased at Rs. 100 per share. The plea, in other words, was to the effect that the consideration being more than the market value of the shares, levy of gift tax stood attracted in the light of provisions of section 4(1)(a). In support of the revenue's case, the ld. D.R. placed reliance on the following decisions
(i) CGT v. B. Sathiar Singh [1975] 98 ITR 316 (Mad.).
(ii) Addl. CGT v. S.V.R. Cycle Mart [1977] 110 ITR 429 (Mad.); and
(iii) CIT v. C. C. Subbarayudu [1988] 171 ITR 310/38 Taxman 20 (A.P.).
As regards the decisions relied upon by the assessee before the CGT(A), the ld. D.R. contended that these were distinguishable as these pertained to the provisions of section 4(1)(c) of the Gift-tax Act whereas in the present appeal the case fell under section 4(1)(a). According to the ld. D.R., each case had to be considered on its own facts and in support of this argument he placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297/64 Taxman 442. We may mention at this stage that one of the submissions made by the ld. D.R. on behalf of the revenue was, that in the present case the GTO had made an observation about the nexus existing between the funds borrowed by the assessee company at 18% and their investment in the purchase of the non-cumulative preference shares in question, the return being 4%. On being confronted, the ld. counsel for the assessee admitted the nexus pointed out by the GTO and now by the ld. D.R. before the Tribunal.
9. The ld. counsel for the assessee in his arguments strongly supported the order passed by the CGT(A) contending that gift tax proceedings were not applicable as the assessee had made a direct purchase of the shares from the company and not from any individual. According to him, a subscriber to the share capital of the company acquired no interest in the property and at that stage there was no transfer involved but the shares became property only after allotment. The ld. counsel also referred to section 79 of the Companies Act, 1956 contending that there was specific prohibition to issue shares at a discount. The ld. counsel also referred to the absence of an independent finding on the part of the GTO to the effect that consideration was inadequate with the further submission that provisions of section 4(1)(a) did not apply to bona fide transactions which a company had entered into in connection with its business. The ld. counsel also argued that the income-tax department could not tell an assessee how to conduct its business or to do it in a particular manner. In support of the order of CGT(A) and in support of the arguments advanced, the ld. counsel placed reliance on a number of decisions besides the two judgments cited before the CGT(A). These are as follows :-
(i) Mrs. Bacha F. Guzdar v. CIT [1955] 27 ITR 1 (SC).
(ii) J. K. Commercial Corpn. Ltd. v. CIT [1969] 72 ITR 296 (All.).
(iii) CIT v. Calcutta Discount Co. Ltd. [1973] 91 ITR 8 (SC)
(iv) Marghabhai Kishabhai Patel & Co. v. CIT [1977] 108 ITR 54 (Guj.),
(v) CGT v. Prafulla Chandra Goswami [1996] 220 ITR 641 (Guwahati),
(vi) Domestic Gas (P.) Ltd. v. ITO [1982] 2 ITD 118 (Hyd.),
(vii) Rattan Chand Oswal v. GTO [1993] 45 ITD 370 (Chd.).
(viii) GTO v. Manoharlal Anand [1996] 54 TTJ (Ind.) 699.
(ix) GTO v. Smt. Achla Tikku [1996] 54 TTJ (Ind.) 370/89 Taxman 82 (Mag.); and
(x) Alex Joseph v. Asstt. CIT [1996] 54 TTJ (Coch.) 374/86 Taxman 323 (Mag.).
The ld. counsel for the assessee also placed reliance on the decision of the Tribunal in the assessee's own case for the assessment year 1986-87 in income-tax proceedings, the decision of the Tribunal in the case of Pankaj Munjal Family Trustand extract of a judgment by the MRTP Commission : Copies of the aforesaid three judgments were placed at pages 1 to 19 of the compilation filed during the course of the hearing. In the same compilation there was a judgment of the Hon'ble Supreme Court in the case of Sri Gopal Jalan & Co. v. Calcutta Stock Exchange Association Ltd. AIR 1964 SC 250, which was also relied upon by the ld. counsel on the question that shares came into existence only on allotment and not prior to such allotment.
10. In a short reply the ld. D.R. contended that section 4(1)(a) nowhere prescribed that a person acting as a prudent businessman or a transaction being bona fide could come out of the purview of the said section. According to him, the decisions relied upon by the ld. counsel were distinguishable. It was further contended that there was a transfer of property as soon as the shares were issued.
11. We have examined rival submissions and also perused the orders passed by the tax authorities. The decisions cited at the Bar have also been considered. It is quite apparent that proceedings under section 16(1) of the Gift-tax Act were initiated taking recourse to the observations of the Assessing Officer and thereafter by the CIT(A) in the income-tax assessment of the respondent for assessment year 1986-87. The GTO has quoted extensively from the orders of the aforesaid two authorities in paras 3 and 4 of the assessment order which is presently in appeal before the Tribunal. Much stress has been laid on the transaction being a device primarily with a view to divert the income of the company and there is also a reference to the prudency involved in the transaction with the ultimate conclusion that non-business considerations were involved. Although not mentioned in the assessment order, provisions of section 4(1)(a) have been applied and the ld. D.R. during the course of the hearing before the Tribunal categorically stated and argued so. In other words, it was made out to be a case of inadequate consideration by the department inasmuch as for every hundred rupees ... which were passed on to M/s. Hero Investments (P.) Ltd., Ludhiana, for purchase of one single 4% non-cumulative preference share, the consideration was only Rs. 30 as according to the department the market value of the shares in question could not be more than the said figure. It appears that the figure of Rs. 30 per share has been picked up by referring to certain transactions at this figure certain other individuals/assessees of the "group". It must be appreciated that there is a distinction when shares are purchased not directly from the company but from any other shareholder, whether it be an individual or an institution or for that matter any other entity. Under section 79 of the Companies Act, 1956, a company is debarred from issuing shares at a discount and it can only do so subject to fulfilment of certain conditions. We do not find any material on record or any adverted to by the ld. D.R. which would show that any such exercise was undertaken by M/s. Hero Investments (P.) Ltd. whose shares were purchased. There is, however, no restriction on a shareholder other than the company itself to sell shares at a price which is below the face value or at a price which is above the face value as both these aspects relate to the market conditions as exhibited by stock exchange quotations and if there are none than the value as would emerge from the audited accounts or the value which is to be determined on the basis of relevant rules, and schedules both under the Wealth-tax Act and the Gift-tax Act itself.
12. Much has been said by the GTO about the loan taken at 1896 from another company of the 'group' in investing the same in 4% redeemable non-cumulative preference shares of M/s. Hero Investments (P.) Ltd. The observations are to the effect that it is a losing proposition which no prudent businessman would enter into and this meant that non-business considerations were involved. A reference is also made to the funds available with M/s. Hero Investments (P.) Ltd. and their investment in another company of the group and consequently the value of the shares held by M/s. Hero Investments (P.) Ltd. as compared to the value of the shares purchased by the assessee and which are the subject-matter of the present appeal. As already noted by us, the stress is on 'a colourable device' to reduce the tax liability. We have already mentioned that gift-tax proceedings were primarily initiated by reference to the findings given by the tax authorities in the income-tax proceedings but when the orders were passed by the GTO and the CGT(A) in the present case, they did not have the benefit of the order of the Tribunal in the income-tax proceedings the appeal in respect of which was decided on 19-1-1995 in I.T.A. Nos. 70 & 93/Chandi./90 (cross-appeal) since the order of the CGT(A) in the present case was passed on 13-12-1991, the order of the GTO being much earlier. A perusal of the order of the Tribunal in the income-tax proceedings shows that the Assessing Officer disallowed interest amounting to Rs. 4,82,153 being the difference between 1896 which was payable on the loan obtained and the 496 which was attached to the shares in question. In paras 7 and 8 of the order of the Tribunal, the arguments of the assessee's counsel are reproduced and these were also reiterated in the present appeal and, in our opinion, they are quite relevant. A number of decisions have been cited in support of the claim and some of them have been referred to in the present appeal as well. This is what the Tribunal observed after hearing both the parties :-
"10. We have considered the rival contentions and we have also perused the different rulings cited by the ld. counsel and the revenue and are of the view that the assessee did borrow certain funds at a higher rate of interest and utilised them for investment in certain preference shares. The assessee could not be prevented from making investment in certain shares only on the ground that the return from shares was very low. We do not agree with the revenue that the benefit accruing @ 49% from preference shares was not sufficient so as to justify the borrowings @ 18%. It is to be noted that the assessee was not dealing in shares and investments had been made as incidental activity of the business. The ld. counsel has argued that there was ultimately no effect on the revenue because the assessee as wen as the other two parties involved belonged to the same group. Borrowing was made from MAL and shares were purchased from M/s. Hero Investments (P.) Ltd. Since the transactions were bona fide and not sham, the interest payable to the creditor is found to be incidental and wholly for the purposes of business. We are unable to agree with the revenue that the interest paid at a higher rate could not be allowed. We have already seen that in the case of M/s. Pankaj Munjal Family Trust, the Tribunal, on identical question, took a view that the payment of interest at a higher rate could not be disallowed. Therefore, following the Tribunal's orders in the cases of M/s. Pankaj Munjal Family Trust as well as Yogesh Chander, as also in view of the various judicial pronouncements, discussed above, ground No. 2 is accepted and the disallowance is deleted."
The Tribunal has clearly held that the transaction was bona fide and not sham and the interest payable on the loans was incidental and wholly for the purposes of assessee's business. The Tribunal has also observed that the assessee could not be prevented from making investments in shares only on the ground that the return from the shares was low. It is quite apparent that as a result of the order of the Tribunal the very basis for initiating the gift-tax proceedings has come to a nought as we have already observed that the GTO heavily relied on the observations by the tax authorities in the income-tax proceedings. In the light of the finding of the Tribunal in the income-tax proceedings, it becomes quite irrelevant as to what happened to the money in the hands of M/s. Hero Investments (P.) Ltd. who issued the shares to the assessee. Then again, there is no material on record available with the department to show what the market value of the shares was as the GTO has gone entirely by the transfer at Rs. 30 by some of the persons of the 'group'. The further submission on the part of the assessee which has been completely ignored by the tax authorities is that the shares were redeemable at par after 10-7-1977 and this means that the entire sum of Rs. 50 lacs would revert back to the company.
13. Another argument raised by the department is to the effect that bona Aide business transactions do not come out of the purview of section 4(1)(a). We are unable to agree to this proposition as there is adequate case law on the subject and we refer to some reported decisions which have been relied upon by the ld. counsel as under :-
1. CGT v. Indo Traders & Agencies (Madras) (P.) Ltd [1981] 131 ITR 313 (Mad.) :
"The investigation to be made under section 4(1)(a) of the Gift-tax Act, 1958, can only be to see whether there is any attempt at evasion of tax or whether the relevant transaction is bona fide. If the consideration which passed between the parties can be considered to be reasonable or fair, it cannot be considered to be inadequate. Adequate consideration is not necessarily what is ultimately determined by some one else as market value. Unless the price was such as to shock the conscience of the court, it would not be possible to hold that the transaction is otherwise than for adequate consideration."
2. Marghabhai Kishabhai Patel & Co.'s case (supra) "Held, that unless it has been shown that the transactions in question were sham ones or unless the value shown was not the value shown in the books of account or unless they were not bona fide transactions, it was not open to the taxing authorities to disregard the figures of the transactions shown in the books of account of the firm."
[To the same effect is the judgment of the Hon'ble Allahabad High Court in the case of Sir Padampat Singhania (supra) relied on by the ld. counsel, where their Lordships held that transactions are caught within the mischief of the provision which was section 4(1)(c) only if the transaction was not bona fide. On the facts of that case, however, the decision of the court went against the assessee.]
3. Calcutta Discount Co. Ltd's case (supra) :
"Where a trader transfers his goods to another trader at a price less than the market price, and the transaction is a bona fide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched, to ascertain the profit from the transaction."
4. J. K. Commercial Corpn. Ltd.'s case (supra) :
"... The test of allowability is not what a prudent man would do in similar circumstances. Though an assessee is an imprudent businessman, yet if he incurs an expenditure voluntarily for the purpose of his own business it would be allowable as a proper deduction. The fact that it was not necessary for the assessee to bear the entire expenditure or that the expenditure also enured to the benefit of others is entirely irrelevant in determining the question whether the expenditure ought to be allowed as a deduction."
In the decision of the Hon'ble Gauhati High Court in the case of Prafulla Chandra Goswami (supra), the matter although was remanded back to the Tribunal, their Lordships took the view that the GTO had to find out the value of the property for purposes of assessing gift-tax on the basis of material. Referring to certain judgments of the Tribunal, the Indore Bench in the decisions reported in Manoharlal Anand's case (supra) and Smt. Achla Tikku's case (supra), while dealing with the provisions of section 4(1)(a) took the view that where there was nothing on record to show that the transaction was not bona fide or aimed at evasion of tax and the GTO had not recorded any independent finding about the sale consideration being inadequate, the charge of gift-tax under section 4(1)(a) was not justified. The decision of the Chandigarh Bench of the Tribunal in the case of Rattan Chand Oswal (supra), also considered the provisions of section 4(1)(a) and it was opined that the same were not applicable where there was no attempt to evade tax and where the transaction was bona fide and the Bench also took the view that the burden lay on the department to prove inadequacy of consideration. As already noted by us in the present case the market value has not been determined by the department with reference to any material and the reference is only to a sale at Rs. 30 by one or two persons of the group.
14. Referring to the judgment of the Hon'ble Madras High Court in the case of Rukmani & Co. (supra), which is also relied upon the CGT(A), the issue was that the assessee had borrowed the money at higher rate of interest and lent the same at lower rate. Their Lordships with reference to provisions of sections 4(1)(a) and (c) took the view that no transfer was involved and there was no finding that charging of lower rate was not bona fide and therefore, the question of deemed gift did not arise. The ld. D.R. sought to distinguish this judgment on the ground that provisions of section 4(1)(c) were involved whereas we find that section 4(1)(a) is also taken into account.
15. Coming to the decisions relied upon by the ld. D.R. in C. C. Subbarayudu's case (supra), the matter was remanded to the Tribunal to record a finding regarding adequacy or otherwise of the market value of the asset in question. This would accordingly not advance revenue's case. In the decision of the Hon'ble Madras High Court in S.V.R. Cycle Mart's case (supra), the question pertained to the provisions of section 4(1)(a) but on the facts of the case their Lordships confirmed the view of the Assessing Officer as there was a clear finding regarding the market value and about the inadequate consideration. In any case, the matter was one of the transfer of shares whereas in the present case the proceedings have emanated apparently from the view expressed in the income-tax assessment vis-a-vis the borrowing of funds at a higher rate of interest and purchasing shares where the return was much less. The last judgment cited by the ld. D.R. was of the Hon'ble Madras High Court in the case of B. Sathiar Singh (supra). That was a case where the assessee had transferred buses to a private limited company and the amount payable to him was credited to his account in the company's books and certain shares were allotted to him by adjusting out of his credit balance. There were two issues before their Lordships, whether there was a single transaction or different transactions and whether gift-tax was attracted. A reading of the judgment shows that there is a categorical reference to the income-tax assessment where the ITO had determined the market value of the buses transferred to the company at a higher figure and assessed capital gains and which assessment was subsequently confirmed. At page 317 in the head note of the judgment, the following observation is relevant :-
"Once there was a sale the question arises as to whether the sale was for adequate consideration so as to attract the charge under section 4 of the Gift-tax Act, 1958. On the basis of the income-tax assessment, the transfer of buses was for inadequate consideration and hence the transaction was liable to gift-tax."
In the present case the income-tax asstt. favours the respondent.
16. Before we part with this appeal we would like to refer to proviso to section 4(1)(a) of the Gift-tax Act which reads as under :-
"Provided that nothing contained in this clause shall apply in any case whether the property is transferred to the Government or where the value of the consideration for the transfer is determined or approved by the Central Government or the Reserve Bank of India."
The ld. counsel for the assessee argued before us that there was no deemed gift under section 4(1)(a) as the transfer at Rs. 100 per share had been fixed by the Government. This was also the argument advanced before the CGT(A) and adverted to by the first appellate authority in para 2.4 of the appellate order. In our opinion, the approval of the Memorandum of Association at the time of incorporation of the company by the Registrar of Companies does not tantamount to approval within the meaning of the proviso to section 4(1)(a). According to us, this stipulates an actual transaction of transfer of an asset since the approval to the MOA pertains to the authorised capital of the company and the type of shares comprising said authorised capital. We, therefore, disagree with the view canvassed by the assessee's counsel and accepted by the CGT(A) in para 2.4 of her order. We would also like to mention that arguments were advanced before us by both the parties as to whether a "transfer" takes place on allotment and what is the status of shares prior to their issue. Numerous judgments have been cited by the ld. counsel but we find that in all these decisions the assessees were either the seller of shares or these were companies which had issued shares whereas we are dealing with a case where the assessee has purchased shares. For purpose of disposing of the present appeal, we do not propose to decide this question by applying the "reverse ratio" as, in our opinion, the appeal can be disposed of on the basis of various other arguments which have been advanced by the parties and which we have duly considered in the preceding part of the present order.
17. In the final analysis, we hold that the transaction in question did not give rise to any taxable event under the Gift-tax Act and provisions of section 4(1)(a) were not at all attracted and it is not the case of the revenue that any other sub-section of section 4 was invoked.
18. In the other two cases i.e. G.T.A. Nos. 5 & 6/Chandi./92, the facts are quite identical and both the parties agreed and stated that whatever decision is taken in the case of M/s. Rockman Cycle Inds. (P.) Ltd., the same be made applicable to the other two cases aforesaid. In the view that we have taken, we uphold the view taken by the CGT(A) that the transaction in question did not give rise to the levy of any gift tax disagreeing with the view expressed with reference to proviso to section 4(1)(a). We need only refer to one argument advanced in the case of M/s. Munjal Castings, G.T.A. No. 5/Chandi./92 the ld. counsel for the assessee contending that a firm was not a taxable entity under the Gift-tax Act and the ld. D.R. arguing to the contrary that the definition of "person" was inclusive and a firm could also come under the purview of Gift-tax Act. A reference was made to the decision of the Hon'ble Calcutta High Court in the case of Aminchand Pyarelal v. GTO [1990] 185 ITR 264/49 Taxman 266. In the view that we have already taken to uphold the quashing of the gift-tax assessments, we do not propose to go into this aspect of the matter leaving it to be decided in an appropriate case.
19. In the result, all the three appeals filed by the revenue are dismissed.